Investors’ Chronicle Portfolio Clinic features Tideway’s advice

Our Wealth Manager Sam Ratnage offered advice to a reader of Investors Chronicle.

As you say, there is a risk your children will not want to monitor their portfolios when they take control at 18. It’s important to prepare for this while making sure their savingsremain invested and grow. Low-cost index funds can work well here, as it is not uncommon for those running active fundsto failto eattrackerfunds, as you have seen with your initial picks.

Stocks offer the best opportunity to grow your children’s savings, so buying a diverse selection of exchange traded funds (ETFs) means the kids can ‘buy and hold’, not take an active interest and not lose too much to charges.

However, while stock markets offer long-term growth prospects, they are hard to predictin the short term. Contractions can be sudden and it can take several years to recover. Therefore, a tracker portfoliowould be more appropriate for Adam, and less so for Megan.

Fidelity, Vanguard and iShares offer good value ETFs and index funds, and you’ll be paying less than 0.35 per cent per year in charges.

Buying a global mix either by tracking the MSCI World index or a mixture of US, UK and European indices is sensible.

Bringing in some active funds will make it easier for ‘goal-based’ investing, such as if Megan wants an income at university. It also means the kids can bring in ethical or sustainable choices. I like Heriot Global
(GB00B99M6Y59), which is a global growth fund that buys stocks for the long term, Unicorn UK Income (GB00B00Z1R87), which buys small- and-mid-cap UK stocks with high yields, and LF Montanaro Better World (GB00BJRCFP12), which is an ethical fund that invests in the green economy, healthcare and
environmentally consciousstocks.

Right now, these could be paired with more safety and income-focused bond funds. Bonds should always be managed by a fund manager, as the market is not efficient or as liquid as the stock market, and index bondfunds are likely to underperformactive ones.The bondmarket has had a challenging 18 months, but it now offers better opportunities for income and capital protection. Here I would pickArtemisCorporate
Bond (GB00BKPWGV34), which buys investment-grade secure debt issued by businesses, and Royal London Sterling Extra Yield Bond (IE00BJBQC361), which invests in higher-income bonds.

In terms of Junior Sipps, as you say, using them removesthe issue of giving 18-year-olds even more money, and it putsless pressure on them to build up their own pensions. However, the age at which they can access this cash is a long time away so you should consider whether that’s worth the tax advantage.

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